The S&P 500 and the Nasdaq Composite soared to record highs last week, and Citi sees the potential for further gains based on new risk flows, the bank said in a note dated May 20.
“Bullish positioning levels continue to rise for the S&P and Nasdaq,” the bank said, as “last week’s activity was led by increased new risk flows,” with the S&P seeing $17bn of notional being added last week from new risk flows.
“This leaves the S&P extended and almost exclusively one-sided. However, profit levels are only beginning to develop, which limits positioning risks,” the bank added.
The same degree of confidence wasn’t reflected in Nasdaq flows – despite an increase in long positioning, net notional levels remain near neutral, and have only marginally changed in recent weeks.
Flows in Nasdaq, despite being positive, have been small and are emerging after a recent period of rapid de-grossing. Net notional, although positive is small suggesting on-going but limited optimism.
Turning to Europe, positioning momentum in Europe appears to be weakening, Citi noted.
“Notional levels were in decline for the EuroStoxx and DAX, whereas FTSE and Euro Banks were flat,” Citi added. “Euro Banks remain the most extended of the indexes we track and pose the greatest positioning risk.”
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